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History and Evolution of Banking in Nigeria

Nuelson Penuel Friday, October 20, 2023 Basis

 

Introduction

Banking is an essential part of any economy, as it fuels economic progress, promotes trade & investment, and enables individuals and businesses to save, borrow, and transact funds securely. The banking sector in Nigeria has grown tremendously since its inception, with banks now being an integral part of the country's economy. In this blog post, we will explore the history of banking in Nigeria, its evolution, and how it has impacted the Nigerian economy.

The Early Beginnings of Banking in Nigeria

Banking in Nigeria dates back to the colonial era when colonial masters established banks to protect their interests, with the first bank established in Nigeria being the African Banking Corporation in 1892. At the time, banks were established mainly to cater to the banking needs of Europeans and expatriates. In 1917, the British colonial government enacted the Currency Ordinance, which authorized the Central Bank of Nigeria (CBN) to issue and regulate the circulation of currency notes and coins in Nigeria. The Banking Ordinance also established and empowered the Registrar of Banks to license and regulate. The Nigerian banking system commenced formal operations in 1929 with the establishment of the Bank of British West Africa.

The Evolution of Banking in Nigeria

After Nigeria gained independence in 1960, the country's banking sector underwent major changes. In 1952, the first indigenous bank, the National Bank of Nigeria (NBN), was established to cater to the banking needs of the indigenous population. The NBN was later succeeded by the First Bank of Nigeria (FBN), which became the nation's first-largest bank, and it remains one of Nigeria's leading banks up to date. During the military regime in Nigeria, starting from the 1970s, the Nigerian banking sector experienced rapid expansion, with the establishment of several banks. Some of these banks include the United Bank for Africa (UBA), Union Bank of Nigeria, and the Nigerian American Merchant Bank (NAMB). However, these banks were largely owned by the government, and their operations were centralized. With the return to democratic governance in the 1990s, the Nigerian banking sector experienced an influx of foreign banks, which offered their services to the Nigerian population. These foreign banks, including Citibank, Standard Chartered Bank, and Barclays Bank, among others, revolutionized the banking sector, bringing in new technologies and innovations, thereby creating an improved banking environment.

The Impact of Banking on the Nigerian Economy

The growth of the banking sector in Nigeria has been paramount to the growth of the Nigerian economy. The Nigerian economy is largely dependent on oil revenues; nonetheless, the banking sector has also contributed significantly to the country's Gross Domestic Product (GDP). The Nigerian banking sector accounts for about 8% of Nigeria's GDP; leading banks, such as FBN and UBA, have operations in other African countries, contributing to the overall economic development of the continent. The banking sector in Nigeria has also helped to enhance financial inclusion, which has led to a reduction in poverty. The introduction of various banking products such as mobile banking, Internet banking, and Automated Teller Machines (ATMs) has increased access to banking services by making it easier and more convenient for individuals to access banking services, including savings, loans, and other credit facilities. Furthermore, the Central Bank of Nigeria has implemented several policies with the aim of creating a more robust banking system. Some of these policies include the Bank Verification Number (BVN), which is a unique means of identification aimed at combating fraudulent activities in the banking sector. This policy also allows for efficient and secure transactions as it minimizes instances of identity theft and other fraudulent activities.

Conclusion

In conclusion, the banking sector in Nigeria has come a long way from its colonial beginnings. From the establishment of the first bank in Nigeria to the influx of foreign banks in the 1990s, the sector has undergone tremendous changes and evolution. Banks have played a vital role in aiding economic growth, enhancing financial inclusion, and enabling trade and commerce, which has led to increased economic activities. The Nigerian banking sector remains an essential part of the country's economy, and with several policies implemented to strengthen its operations, it is poised to make significant contributions to Nigeria's growth and development in the coming years.

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